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May 5, 2020 at 11:05 AM

JACKSON, Miss. – Money meant to help poor residents was used to buy luxury cars, sponsor a college baseball tournament and hire family members of a top state official, according to a report from State Auditor Shad White.

The 104-page audit of the Mississippi Department of Human Services released Monday shows how federal welfare grant funds flowed from DHS into two nonprofit groups, which allegedly spent the cash in inappropriate or questionable ways.

More than $94 million in welfare money spending was "questioned" by auditors, according to the report – alleging either outright misspending or lack of documentation showing it was spent properly.

In a statement, White said the report "shows the most egregious misspending my staff have seen in their careers at the Office of the State Auditor." He said, "If there was a way to misspend money, it seems DHS leadership or their grantees thought of it and tried it."

The routine annual audit, which focused on fiscal year 2019, follows criminal indictments this year related to the welfare spending. White called that case Mississippi's largest embezzlement scandal, involving about $4 million in welfare money known as the Temporary Assistance for Needy Families program, or TANF.

Those facing criminal charges include former Department of Human Services Director John Davis, as well as Nancy New, the leader of the Mississippi Community Education Center, or MCEC, one of the nonprofit groups that received millions of TANF dollars.

The USA TODAY Network's Mississippi Clarion Ledger and other outlets reported on issues at the state's human services department and potential misspending by MCEC for months. The extent of misspending and lack of controls detailed in Monday's audit was not previously known. The audit shows for the first time how a second nonprofit group, the Family Resource Center of North Mississippi, or FRC, allegedly made many questionable or inappropriate expenditures using welfare cash.

According to the audit, the spending was possible because Davis limited outside monitoring of the welfare grants. Auditors said they found forged documents, a limited or nonexistent process for vetting contracts, fraudulent accounting and more.

White said his office will forward the findings to the U.S. Department of Health and Human Services, which oversees the welfare program. Depending on what the feds view as misspending, White said, this could lead to cuts in TANF allotments or other sanctions placed on the state.

Among the audit's "questioned" spending:

The two nonprofit groups used welfare money to hire lobbyists, often without paperwork describing the work they were supposed to do.
MCEC gave contracts to, and hired, family members of Davis, sometimes making lump sum payments. The payments and salaries to his nephew and brother-in-law totaled more than $1 million over the past several years, auditors said.
Both nonprofit groups gave welfare money to a trio of wrestlers, Ted DiBiase, Ted DiBiase, Jr. and Brett DiBiase – some of it for work never performed, some for "unreasonable" travel costs.
MCEC paid Victory Sports Foundation with welfare money to run fitness programs, some of which Mississippi legislators and other officials or staffers participated in, free of charge. The trainer who runs Victory, said he did not know he received welfare money.
MCEC bought three cars with welfare money, each worth more than $50,000, for New and two sons. Salaries, cellphones and other expenses were paid using welfare money. The vehicles included a 2018 Nissan Armada, a Chevrolet Silverado and a Ford F-250. In each case, the vehicle was registered to MCEC, but in each case, auditors said the vehicles were for personal use.
MCEC used welfare money for sports-related purposes, including sponsoring a college baseball tournament and other NCAA events.
MCEC cut a $3,000 check to a bookkeeper of MCEC, though a handwritten note says "$3,000 cash was given to" Davis, the DHS executive director.
MCEC moved $6 million to a private school and organization run by New and bought supplies for the school.

DHS officials were scheduled to respond to the report Monday afternoon at a news conference. The directors of MCEC and FRC did not immediately respond to requests for comment Monday. Neither did attorneys for New and Davis.

White said additional indictments could come in the separate criminal case. Federal investigators, including the FBI, are involved.

“This audit should be a wake-up call to everyone in government," White said. "The old way of doing things, where you do whatever your boss or a person who controls a lot of money tells you to do, or you ignore the law around how to spend money because you think no one is looking – those days are over."

Follow reporter Luke Ramseth on Twitter: @lramseth

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